We frequently write about the challenges of getting paid in the construction industry, but how much of a problem is this really? A recent survey by Constructiononline of subcontractors in the U.K. is revealing, especially since the United States is widely considered to be more litigious than its English cousins.
So what did the survey say?
Replies from nearly 900 firms revealed that 32.6% turned down jobs last year because of the late payment practices of main contractors offering them work.
And 50.4% of those quizzed said they had to resort to threatening legal action to get their bills paid.
As you can see, the challenge of getting paid in construction is costing subcontractors. Nearly a third of them have to turn down business to avoid problems, and a full half of subcontractors have hired attorneys to make threats to get payment. These numbers are perfectly in line with what we’ve reported in the past about these payment challenges, and they highlight the value of preliminary notices and mechanics liens rights for your company.
Protecting Your Lien Rights Means You Can Make More Money And Take More Business
I’d first like to discuss how protecting mechanics lien and bond claim rights can help companies with the first problem revealed by this survey. A third of subcontractors reported turning down business because of late payment practices by the general contractor. This means that the subcontractor is qualified and ready to do the work, but they simply know that getting paid is going to be a hassle. They rather just not do the work.
When your payment is held up it seriously impacts your cash flow, your ability to continue working on the project in question, and your ability to handle other projects.This is a problem, but it’s only part of the problem.
Think about how rare it is for you to actually know the general contractor’s payment practices. While it’s possible that you’ll avoid a general contractor because of their payment reputation, it’s more likely that you’ll get stuck with a general contractor (or developer, or lender) who surprises you with late payment practices. When your payment is held up it seriously impacts your cash flow, your ability to continue working on the project in question, and your ability to handle other projects. It can be a big problem.
Protecting your mechanics lien or bond claim rights by sending preliminary notices will actually work to offset this risk. It does this by prioritizing your invoices in the mind of the contractor or developer. These entities actually utilize software – like Textura or Greenlight – to manage which contractors send notice and which do not…why? So that when push comes to shove they know who must get paid to protect their interests in the project.
Nearly a third of subcontractors out there are turning down business because of payment problems. A strong lien protection policy will open up these projects to those subcontractors, and more.
Payment Demands Threatening Lien Action Are Very Effective
The second statistic is perhaps more troubling than the first: Half of subcontractors have made legal threats to get paid on a project. This statistic has a lot of buried issues:
- If a legal demand is necessary, there has already been a negative cash flow impact
- Legal demands cost money and time
- Legal demands are not always successful
- Depending on a party’s legal position, the demand may be replied to with a settlement offer, which means companies are getting pennies on their dollar
When in the position of requiring legal demands or threats to get paid, it is absolutely essential to have your mechanics lien or bond claim rights available. These rights significantly increase the likelihood that you will get paid. Plus, the payment will come faster and be closer to your full demand than making the demand without lien protections.
We just recently went over this in detail in response to a survey of our own on the Notice of Intent to Lien document. According to our survey, 47% of those who sent a notice of intent to lien were paid within 20 days of sending the document. This is a pretty remarkable success rate for a single, inexpensive demand notice.
Further, if a party must go on to file a mechanics lien, more than 64% of mechanics lien claims are paid within 90 days without any further legal action. Again, this is a remarkable success rate considering the desperation and age of the debts.
For more about how a Notice of Intent to Lien demand may help you, watch this Webinar: